Pre-Employment Assessments – Employed or not Employed: that is the question

Are pre-employment assessments possible or has an employee already entered into employment?

Many employers have traditionally carried out an ‘on the job trial’ as part of the recruitment process. We will term these ‘pre-employment assessments’, so that they are not confused with ’90 day trial periods’ under the Employment Relations Act 2000 (“the Act”). These pre-employment assessments often involve an invitation to “work a shift or two” (usually unpaid) after which the employee may or may not be offered employment.

So, are pre-employment assessments possible or has an employee already entered into employment? The risk that a pre-employment assessment may be considered employment will come as an unwelcome shock to employers using this practice. There have already been three Employment Relations Authority cases in 2013 on this point. We assess them below and give you our thoughts.

The Pharmacy – not employment In Hussein v Otahuhu Community Pharmacy Limited (“Hussein”) the Authority found that a potential employment candidate on a pre-employment assessment was not an employee.

Mr Atia, who ran a pharmacy by himself, was investigating with WINZ the possibility of hiring another employee to provide beauty therapy and massage services to increase business. He was advised by WINZ that he would receive a 40% subsidy towards that employee’s wages if the successful candidate was from WINZ.

The pharmacy could only afford another employee if that subsidy was available. Importantly, WINZ was unable to confirm the availability of the subsidy until it had details of the job from Mr Atia including the hourly rate, and hours of work to be offered.

Prior to those details being provided, WINZ advised Mr Atia that it had an applicant, Ms Hussein, with the necessary skills and experience.

Mr Atia decided to give Ms Hussein a pre-employment assessment as part of the interview process. She attended the pharmacy and performed some cleaning services, and a neck massage. Mr Atia decided that Ms Hussein’s skills were not satisfactory, and it was clear to him that she was not experienced. Therefore he told her he would not be offering her employment, and would inform WINZ of that decision.

Mr Atia told the Authority that he advised Ms Hussein that he did not expect to pay her for an assessment of her suitability for the position, however, because she became agitated when told she had not passed the pre-employment assessment, he agreed to pay her $30 on the understanding that she come back another day to complete the vacuuming. She never did so.

Ms Hussein raised a personal grievance for unjustified dismissal, and the Authority needed to determine whether she had in fact been an employee of the pharmacy.

In finding that she had not become an employee, the Authority applied a traditional analysis and considered whether there had been an offer of employment by Mr Atia, and a corresponding acceptance by Ms Hussein. It found that none of the required terms of employment had been agreed; Mr Atia had never discussed the terms and conditions of the position, or salary, or hours of work, or any other details with Ms Hussein. The payment of $30 did not indicate an agreed rate of payment, rather, it was in the nature of an ad hoc payment made to an independent contractor.

Furthermore, the Authority was satisfied that Mr Atia would not have made an offer of employment without confirming with WINZ that the subsidy was available. At the time Ms Hussein was undergoing the pre-employment test, Mr Atia had not provided WINZ with the details in order for it to confirm the subsidy’s availability.

Accordingly, Ms Hussein was not an employee and therefore could not pursue her personal grievance claim.

The Salad Bowl – employment Howe-Thornley v The Salad Bowl Limited is another Authority case which considers the informal practice of pre-employment assessments since the 90 day trial period was introduced into the Act.

The Salad Bowl Limited (“Salad Bowl”) operates a café from retail premises in Nelson, preparing and selling salads. It intended to open an outlet to operate from a mobile cart. The mobile cart was still in the Council consent process, but Salad Bowl advertised for a new staff member who, it envisaged, would ultimately work the anticipated cart.

Ms Howe-Thornley was interviewed by Salad Bowl. She claimed that the interview ended with a job offer and that there was no mention of any kind of trial period. In contrast, Salad Bowl asserted that it made clear to Ms Howe-Thornley that she would be required to undergo a three hour ‘trial’ to ascertain her suitability for the job (a pre-employment assessment rather than a 90 day ‘trial period’ as that term is used in the Act). Only after the ‘trial’ might Ms Howe-Thornley be offered a position.

Both parties agreed that wages were not discussed.

Ms Howe-Thornley commenced by working for approximately two and a half hours at the back of the shop, preparing salads and cleaning. The Manager became ill and left work early, so Ms Howe-Thornley was sent home and could not complete her assessment that day. She was asked to return the following day and then spent an additional two hours at the counter serving clients and operating the till.

All seemed well. But, at the end of the day, Salad Bowl discovered a shortfall in the till and concluded that Ms Howe-Thornley had taken the money. This was not raised with her and she was sent a text simply advising “No need to come into Salad Bowl tomorrow. We’ll be in touch.”

Ms Howe-Thornley thought little of this, as the cart was not yet in operation. However when she made enquiries a week or so later, Salad Bowl bluntly advised her, again by text, that money was missing, there was no job for her, and could she please return her t-shirt. Salad Bowl did originally intend to pay Ms Howe-Thornley for the work that she did while on ‘trial’, but changed its mind when money was found to be missing.

Ms Howe-Thornley raised a personal grievance for unjustified dismissal but was Ms Howe-Thornley a Salad Bowl employee? That is, did she even have the ability to raise a personal grievance? There was no employment agreement, and Salad Bowl argued she was only a ‘prospective employee’, not an actual one. It claimed the practice of a short unpaid ‘trial’ (pre-employment assessment) followed by a formal 90 day paid trial period under the Act was standard in the industry.

The Authority gave Salad Bowl’s argument very short shrift. It concluded that as Ms Howe-Thornley was carrying out work and that Salad Bowl had intended to pay her (even though there was no agreement to do so, and that it later decided not to pay her because of the alleged theft) the necessary elements of employment existed. The Authority applied a work for reward analysis rather than offer and acceptance.

The Authority therefore concluded that Ms Howe-Thornley was employed and could raise a personal grievance. She also, despite her employer’s use of the term ‘trial’, could not be on a valid 90 day trial period, as trial periods need to be agreed in writing prior to commencement of employment. Further, lawful 90 day trial periods were “paid employment and there is no facility for unpaid experiments”. It noted that the ‘industry practice’ was arguably an unlawful device which deprived prospective employees of their statutory rights.

Incidentally, Salad Bowl has challenged the Authority determination in the Employment Court. In the meantime it had failed to satisfy the orders of the Authority and had a distress warrant executed in the District Court and its plant and equipment seized by a bailiff. That in turn prompted an application to the Employment Court staying the execution of the Authority orders.

Eden Mozaik Café – not employment Ahuja v Eden Mozaik Limited was released shortly after the Salad Bowl determination, and involved a similar set of facts. Mr Ahuja undertook a voluntary and unpaid pre-employment assessment, working in the café for two days. The Authority determined that there was no offer and acceptance of employment following the pre-employment assessment as no employment terms were discussed or agreed. Subsequently, Mr Ahuja was provided with a written employment agreement containing a 90 day trial period provision, which was held to be valid, as the Authority did not think that Mr Ahuja had been previously employed. However the Authority did not appear to hear considered argument on whether that pre-employment assessment meant that Mr Ahuja was, in reality, working as an employee at that point.

In our viewHussein and Salad Bowl are the more reasoned of the three determinations, but unfortunately go in opposite directions on pre-employment assessments.

In Salad Bowl, the Authority looked at the interrelationship between the statutory 90 day trial periods, and a pre-employment assessment, and concluded that Parliament had made provision for employers to assess new staff, in passing the 90 day trial, and this is the system that employers should use.

In contrast, in Hussein the Authority did not consider the statutory framework for 90 day trial periods, and instead focussed solely on the more traditional analysis of the principles applying to any contract – that is, has there been an offer, and an acceptance, and is there certainly of the essential terms of employment? In particular, has the prospective candidate been given sufficient information on what the position involves to constitute an offer of employment, or are the terms just too uncertain like in Ms Hussein’s case?

The Salad Bowl determination has been challenged – so it could be a case of “watch this space”! However, the Salad Bowl analysis of work equalling employment (rather than offer and acceptance) while rarely applied in New Zealand does have some momentum in other jurisdictions.

But for the moment, employers need to be extremely cautious using pre-employment assessments regardless of whether they are paid or unpaid. A person on a pre-employment assessment could be found to actually be an employee which would invalidate any subsequent 90 day trial period being entered into and the employer would need to justify any subsequent dismissal . Instead, we suggest that employers take advantage of the statutory 90 day trial periods – that is what they are there for.

However, if an employer does wish to use a pre-employment assessment, we recommend the following:

Do not call it a trial. Call it an appraisal, assessment, evaluation, or even an audition.

Do not offer to pay for the assessment period.

Do not have an assessment of more than a few hours.

Have the prospective candidate conduct specific tasks related to the position applied for and not general tasks, i.e. the tasks should be central to the potential position. As an example, a person applying for a barista position should be assessed on the person’s ability to make coffee not hours of washing dishes.

Where possible, get the prospective candidate to perform mock work and not actual work, for example, get the prospective barista candidate to prepare coffee for the manager or staff for assessment and not an actual customer.

Make it very clear that it is a pre-employment assessment, and not employment or an offer of employment, and preferably have this in writing.

The closer the pre-employment assessment looks to work rather than an evaluation, the greater the risk the employer takes that it has employed the person.

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